Retail is a Journey, Not Simply a Destination

JEFF GREEN | Jun 01, 2005

During the past decade, lifestyle centers have captured the imagination of retail real estate developers, prestigious merchants, consumers and the general and specialist media. The concept has grown in scale, scope and prevalence, expanding far beyond its role in mixed-use town center and village settings, or as a stand-alone specialty fashion mall. Having been adapted to meet increasingly diverse geographic and demographic settings, the lifestyle center has become the preferred form of new retail development.

But what's in a name? Does this trend have sustainable growth over the next decade? If so, is there an optimal format and what will it be like?

The good news is that the lifestyle center movement, if we might call it that, represents much of retail at its finest. Just like the best new vehicles, the “fit and finish” of retail development continues to improve and impress. We find excellence in areas like overall construction quality, architectural detailing and signage, pedestrian access (i.e. street or curb appeal) and traffic control, and lighting and landscaping.

This new curb appeal goes more than concrete deep. Individual merchants are making significant contributions to our retail culture with new concepts and presentation formats. They are responding to the modern consumer, who still demands value, but continues to be willing to try out new styles and tastes, from food, clothing and personal items to home furnishings and appliances. This is an opportune time to sell and to shop.

Unfortunately, as the name has grown and been applied more widely, its meaning has gotten fuzzy. The term now means different things to different audiences and, much like big box, a term at another point of the retail compass, it has outgrown its original definition and, perhaps, usefulness.

Going forward, successful developers will realize that the future is in stand-alone or mixed-use projects that include what is better termed a “hybrid center,” made up of many different retail components. The reasoning goes beyond our realization that there is no longer a prototype or standard definition for a lifestyle center development. We must also understand that some lifestyle centers, especially those built to a “fit anything” prototype, are not meeting sales expectations. This includes centers that have been open long enough to work out marketing or tenant selection challenges.

We need to go back to the basics of retail site selection and tenant selection. Successful developers will need to understand each local marketplace, view it as unique, and tailor the project and its components (residential, office and the specialty retail that it might include) to meet its unique needs.

Developer-Tenant Dynamic

Remember the days when formulas were used to “optimally” fill a regional mall or larger community mall? A certain percentage of the tenants needed to focus on women's apparel, others would sell cards and gifts, and so on. Even then, I wasn't sure why we followed such a system.

Regardless, it has become clear that such a tactic no longer applies. It's obsolete for several reasons. First, “lifestyle” centers appeal to merchants for their lower true rental costs. Even if they cost more to build per square foot, given the detailing and overall construction quality, tenants freed of mall common area charges (CAM) can achieve better profitability. Second, the successful center combines many physical platforms, including elements of neighborhood retail, services, lifestyle and fashion tenants, and, even, specialty box retailers. The last term is preferred over big box, which has negative connotations with many communities and planning officials. We should reserve the big-box term for true big boxes, stand-alone “category killers” of 75,000 square feet in size and greater.

Third, we have also grown beyond fixed “anchor” concepts. Some centers may start out as anchorless combinations of small specialty lifestyle tenants, then evolve into centers that may, or may not, have a fashion-oriented department store like a Von Maur or Dillard's. New-style anchors such as cinemas are fine, but are not de rigueur, either. The Irvine Spectrum in Orange County, Calif., is a good example of a center that naturally evolved. It started as restaurants and entertainment, and is now adding Target, Robinsons-May and Nordstrom. Prestige retailers no longer object to being near a Target or Costco, for they share the same high net worth customers.

The implications of the factors above are clear: Centers with a smaller number of total tenants; tighter selection criteria for which tenants make sense for a specific project, as center developers can no longer rely on anchors to drive traffic and new income formulas. At the same time, we are finding that the most successful developers are working with select merchants to find their best, next locations — and develop and build the centers that make sense for tenants (whether in primary, secondary or tertiary markets — they all can work) and which consumers crave.

A more organic approach will also help defuse some of the tensions we see developing between lifestyle centers and downtown shopping districts. It's to no one's advantage if the lifestyle center is perceived as the same devouring colossus as regional malls or power centers once were.

A Mercedes at Subway

Anyone who completed a parking survey or checked ZIP codes at the register had an inkling of otherwise surprising results about wealthy shoppers' favorite stores. However, a survey sponsored by Women's Wear Daily and reported in spring 2004 — Lifestyles of the Super Wealthy — is still creating a buzz with retail analysts, developers and major tenants. The top three most-shopped stores for folks with average annual incomes of $359,000 are Target, Home Depot and Costco. Nordstrom was No. 4, the Gap No. 5, but cost-consciousness resumed with Bed Bath & Beyond, Best Buy and Wal-Mart right behind. Saks Fifth Avenue closed out the top 15.

Consumers are educating the retail real estate community. They will shop where it is convenient and be selective about value, at both high and low purchase point ends of the scale. Retailers and their development partners must understand their customers, markets, populations, demographics and psychographics; no two retailers have exactly the same audience. They must choose the format and merchandise selection that best satisfies the consumer — not the reverse. And, yes, I have seen plenty of people driving a Mercedes up to a Subway shop for a healthy, value-conscious and stylish lunch or take-out dinner.

By adapting a targeted, customized hybrid center mentality, the retail economy and related real estate will show more profits and greater long-term value. We will continue to create retail experiences that don't wear out their welcome so quickly, while possessing the capability to evolve in interesting, even unexpected, ways.

This is one opinion piece in a continuing series of analysis Retail Traffic is offering by executives assessing the future of shopping centers.

Jeff Green is President and CEO of Mill Valley, Calif.-based Jeff Green Partners, which provides consulting service to real estate developers and retailers.